Good news on Lumber Prices
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People who bought new construction homes at inflated prices over the last three to six months are going to be pissed when they realize their home value is going to dip to below what they paid for their home.
Yep, very welcome news. I’ve got a couple projects I’ve been waiting on including a backyard gazebo, but there was no chance that I was building one at recent prices. As I mentioned in a prior thread, we’re looking at putting a pool in, and I was floored when I found out that adding the gazebo was going nearly double the total cost
Bad thing is that steel has shot through the roof. I put in a steel order through my job back in march and my company sat on it. Had to get it requoted and it went up $1,100 since then!
"People who bought new construction homes at inflated prices over the last three to six months" will get what they have coming to them. It was not a well kept secret that all building materials and furnishings (washer/dryers, refrigerators, etc) were in short supply and higher than a giraffes *** when they did it, to themselves.........I've got a couple outdoor building projects that have been on hold since the Fall because of it, glad to see they are coming down
I don't think falling lumber prices will mean any relief for home prices. As far as I can tell, tract home builders are selling inventory as fast as they can throw them together and i don't know that htey'll have to come off their pricing from the past few months if they don't want to. May have to adjust pricing on some of the existintg contracts to get them financed. But there still appears to be very little existing inventory on the market. I don't understand what in the hell has driven the crunch for housing, so I wouldn't be surprised to see it cool off considerably, but I don't think lumber prices will do it by itself.
It is indisputable that lumber prices have created an artificial home value bubble and that bubble is going to pop. To your point, demand is such that the bubble may not be as large, but it is going to affect prices to some degree.
We just went under contract on our house last week. I hope the appraisal still hits high. Maybe I’ll get lucky sell high and buy lower
Depends where you are. Inventory is so low in some areas that this will have little impact. It's going to take a combination of several things to drop prices. Interest rates need will likely need to double, supply chains need to catch up to pre Covid times, and the fed will need to stop printing money. I think it's going to take a couple years for things to stabilize.
A few modest changes to your statement: lumber prices have contributed to elevated home prices. Not sure I would attribute the artificial rise of housing to lumber since lumber seems just to be market forces. Historically low interest rates and the work-from-home paradigm shift have also contributed to the rise in housing prices.
At least where I live, it appears that home demand drove the lumber bubble, not the other way around. Home prices were increasing at a steady, probably unsustainable clip before COVID, then shockingly started skyrocketing when covid hit, then lumber prices shot up in the summer, I assume because demand went up right when supply had a crunch due to mill shutdowns due to covid. I don't understand what was driving the price increases prior to COVID. Obviously we had cheap money but there wasn't a ton of population growth. I guess it was just continued depressed housing starts for years after the housing bubble finally resulted in supply falling behind demand, and I guess that combined with the cheap money resulted in people bidding up existing inventory. But I don't see that lumber prices falling now will change anything immediately, except that it will keep new houses coming online and hopefully allow prices to at least flatten out.
Why the sudden and significant drop in prices?
...is demand for new construction and renovations lower? It doesnt appear to be.
...is supply increased? It doesnt appear to be.
...is demand for new construction and renovations lower? It doesnt appear to be.
...is supply increased? It doesnt appear to be.
I'll go ahead and chime in here since this is my world.
1. Lumber futures contracts are a speculative asset. They are not a guarantee of ACTUAL lumber prices, but a speculation of what will happen. I traded real world lumber for years and have plenty of friends still in that world, there has been a 10-15% pullback in the broad composite average across all species, but its still up 4X since last year. Lumber futures had pulled back 52% in 5 weeks. Lumber will not move that far down for quite a while.
2. "Lumber" itself is a small portion of the cost of building a home. Land and labor are by far the biggest pieces of the cost. Does anyone believe labor costs are going down anytime soon? How about land? So while lumber and osb will come back to earth, labor is going to rise rapidly and residential lots are as rare as a bottle of Pappy sitting on the shelf at MSRP in most markets.
3. All other components of construction are still taking massive price increases. Engineered wood went up 30-40% in May. Same with siding. These are not commodity items. They will not decline in price very often if ever. There is currently a massive shortage on large nailing plates for roof trusses. I know of several truss plants that are barely operating until they can get plates. They are not buying lumber right now, but when they come back online it will drive the market up.
4. Builders are not in the business of lowering home prices on new construction. Cost plus guys don't really care, they just raise/lower the price through the build as stuff changes, but most single family in the US is built by production builders. They will usually contract price at today's market and when the home is complete, you get the build at the agreed upon price. In this environment, it pays to be early as a buyer. I see new construction neighborhoods where the same model house is up 40-50% YOY. The housing price increases are slowing, but they are still happening. This is mainly demand driven. The lots have doubled and their are labor shortages... Remember the old adage folks, real estate is local. Demand in rural MS is not the same as Austin, TX. If you are in a low demand area, it's likely you could see some pullbacks in home prices, but if demand is there... they will continue to climb.
5. Anybody that bought in the last year has been able to lock in a wonderful interest rate. After yesterday's FED scuttlebutt, all signs point to a slow climb in interest rates. This will eventually slow demand, but for those already locked in the low rates are going to be a big deal down the road. Conventional thinking would suggest that as interest rates rise, it will hurt house prices through affordability... Which is true in low demand areas with weak wage growth. But rising interest rates are usually a direct result of economic growth, which means higher wages. Rising interest rates also drive up rental costs, which helps prop up single family home value.
6. This summer is projected to be a record fire season out west and a busy hurricane season. In a constrained market, either one of these could cause a massive supply side problem on lumber and osb.
All in all, 8 out of 10 homebuyers in the last 6-12 months are in at a better price than they would be if they waited. If you are doing a custom build/DIY type thing in a low demand area, patience has been a virtue. But national projections are showing a 7% increase home values for the remainder of this year and 4.1% increase for next year. That means a 10-20% in some areas by the end of 2022 and maybe closer to 0 in other areas.
ETA. While I was typing this lumber futures are up 11% from today's low. There is a lot of contract covering and the likes going on, but futures most likely overshot the mark in April and have over corrected here in June.
1. Lumber futures contracts are a speculative asset. They are not a guarantee of ACTUAL lumber prices, but a speculation of what will happen. I traded real world lumber for years and have plenty of friends still in that world, there has been a 10-15% pullback in the broad composite average across all species, but its still up 4X since last year. Lumber futures had pulled back 52% in 5 weeks. Lumber will not move that far down for quite a while.
2. "Lumber" itself is a small portion of the cost of building a home. Land and labor are by far the biggest pieces of the cost. Does anyone believe labor costs are going down anytime soon? How about land? So while lumber and osb will come back to earth, labor is going to rise rapidly and residential lots are as rare as a bottle of Pappy sitting on the shelf at MSRP in most markets.
3. All other components of construction are still taking massive price increases. Engineered wood went up 30-40% in May. Same with siding. These are not commodity items. They will not decline in price very often if ever. There is currently a massive shortage on large nailing plates for roof trusses. I know of several truss plants that are barely operating until they can get plates. They are not buying lumber right now, but when they come back online it will drive the market up.
4. Builders are not in the business of lowering home prices on new construction. Cost plus guys don't really care, they just raise/lower the price through the build as stuff changes, but most single family in the US is built by production builders. They will usually contract price at today's market and when the home is complete, you get the build at the agreed upon price. In this environment, it pays to be early as a buyer. I see new construction neighborhoods where the same model house is up 40-50% YOY. The housing price increases are slowing, but they are still happening. This is mainly demand driven. The lots have doubled and their are labor shortages... Remember the old adage folks, real estate is local. Demand in rural MS is not the same as Austin, TX. If you are in a low demand area, it's likely you could see some pullbacks in home prices, but if demand is there... they will continue to climb.
5. Anybody that bought in the last year has been able to lock in a wonderful interest rate. After yesterday's FED scuttlebutt, all signs point to a slow climb in interest rates. This will eventually slow demand, but for those already locked in the low rates are going to be a big deal down the road. Conventional thinking would suggest that as interest rates rise, it will hurt house prices through affordability... Which is true in low demand areas with weak wage growth. But rising interest rates are usually a direct result of economic growth, which means higher wages. Rising interest rates also drive up rental costs, which helps prop up single family home value.
6. This summer is projected to be a record fire season out west and a busy hurricane season. In a constrained market, either one of these could cause a massive supply side problem on lumber and osb.
All in all, 8 out of 10 homebuyers in the last 6-12 months are in at a better price than they would be if they waited. If you are doing a custom build/DIY type thing in a low demand area, patience has been a virtue. But national projections are showing a 7% increase home values for the remainder of this year and 4.1% increase for next year. That means a 10-20% in some areas by the end of 2022 and maybe closer to 0 in other areas.
ETA. While I was typing this lumber futures are up 11% from today's low. There is a lot of contract covering and the likes going on, but futures most likely overshot the mark in April and have over corrected here in June.
Other constraints are in play now. Labor and oddball stuff like joist hangers and pvc are slowing down the builds allowing lumber to catch up. Also, a lot of rain in TX and the South has slowed things. Mother nature will probably give lumber a stiff upper lip with fires out west this summer.
This whole chip deal has created a vehicle bubble, as well. Particularly with trucks. Any of you looked at used trucks lately? Holy s$!t! People are selling trucks they bought 2 years ago for $5-7K more than they paid for them. The problem with that, is unless you have a 3rd vehicle you have to replace it in that same market.
But I feel like there’s going to be a lot of trucks available at good prices in the next year or so.
Not going to happen. The government is about to change the way homes are appraised. Plus, housing values are rising at insane rates. They'll be fine.
Yep. It's amazing to me that the same people who actually lived through the dot.com bust and the housing bust can't see these things. Life experience is the best teacher. People have short memories. This stuff won't sustain, and maybe now more than ever, the bubble is artificial.
I think people enjoy panic. People's lives are so boring that they create drama that isn't there.
Anyways, all the people who sat tight during all this mess and didn't go out and do dumb **** because they were bored, or people such and such were doing it and they don't want to get left out, will be sitting pretty a year or two from now.
I redid my kitchen this winter. Ordered matching appliances in February. Dishwasher no problem, about a week or two on the stove. I still haven't gotten my fridge.
Home values in general have increased. But new construction home values have spiked higher, and that's directly related to lumber prices. I don't disagree with the rest of your statement, but
the cost of lumber is having a bigger impact than some are suggesting.
Seems like everyone I know (including me) decided they needed a garage fridge when pandemic hit.
New construction homes are appraised just like every other home. The appraiser doesn't look at what lumber cost that week and add value. I'm sure builders wished they did, but that's not how it works. Like many have said, the home "bubble" (just like the vehicle one), is due to low inventory. The world's supply chain is JIT which is great when managed properly, but there are too many companies that don't manage it properly, and that ruins it for everyone. Of course the COVID effect exasperated the gaps that were already there.
I just feel fortunate that I started my house last spring and finished it just before the end of 2020 when interest rates bottomed out.
So you think house values are going to fall? Seriously?
Supply and demand drives prices... Not a temporary euphoria in lumber futures. There is a massive housing shortage in the US. Here's a good article from the WSJ yesterday. Since its behind a paywall, I can summarize. There is currently a shortage of 5.5 million housing units. We would have to build 2.1 million new units a year for a decade, which 30% more per year than the average starts of 1.6 million, just to catch up. That typically is not the recipe for a decline.
https://www.wsj.com/articles/u-s-ho...illion-more-units-says-new-report-11623835800
Here is a chart of US housing starts by year... Its clear that the housing bubble was caused by overbuilding. Since 2008 we have been underbuilding.
View attachment 20629
Supply and demand. There is a lot of demand and not nearly enough supply right now. In fact, Zillow, probably has more access to housing data than any other organization in the US. Here is their prediction of housing prices for the next 12 months.
View attachment 20630
I will say it again, real estate is local. If you live in an area where the population is declining and demand is weakening, real estate will suffer. If you are in an area of demand, it will have excellent gains as we enter a sustained inflationary period with excellent economic growth on the horizon. On the whole, the US housing market has lots of legs. Anyone that was waiting on the sidelines last year and again this year, has probably missed out on a once in a lifetime capital appreciation opportunity. Now if you own a home and didn't sell or buy, you are not on the sidelines. But someone who chose not to buy because of lumber prices has probably hurt themselves in 9-10 markets. Now if you are talking about a DIY project like a shed where all the costs are tied directly to lumber and sheet goods, that's a different story.
Just so you know, I am putting my money where my mouth is on this one... I contracted a new construction last September that just finished framing and I am currently in a 38% positive equity situation on that home and it won't be complete for a few more months. (Picked a new development neighborhood in a booming city that is really benefiting from remote workers.) Just had a conversation with my agent today and the builder is planning on raising prices again before the end of the month in that development. Yesterday, I went under contract on another home in a resort town that I will live in for the next few months and then use it as a vacation rental. I figure vacation rentals will be in high demand for a few years too. I'll be glad to let you know what the appreciation looks like on both in 12-24-36 months. The market won't run as fast as it has, but there is plenty of juice left.
Comparing the housing market to the dot com bubble is silly. Comparing today's housing market to 2007 is just ignorant. These crazy price increases are a result of money printing, millennials coming of age and buying house, boomers living longer, and a lack of inventory caused chiefly by underbuilding for the previous decade. The housing bubble was caused by putting underqualified buyers into homes they couldn't afford and builders/developers thinking that trend was sustainable.
View attachment 20631
Supply and demand drives prices... Not a temporary euphoria in lumber futures. There is a massive housing shortage in the US. Here's a good article from the WSJ yesterday. Since its behind a paywall, I can summarize. There is currently a shortage of 5.5 million housing units. We would have to build 2.1 million new units a year for a decade, which 30% more per year than the average starts of 1.6 million, just to catch up. That typically is not the recipe for a decline.
https://www.wsj.com/articles/u-s-ho...illion-more-units-says-new-report-11623835800
Here is a chart of US housing starts by year... Its clear that the housing bubble was caused by overbuilding. Since 2008 we have been underbuilding.
View attachment 20629
Supply and demand. There is a lot of demand and not nearly enough supply right now. In fact, Zillow, probably has more access to housing data than any other organization in the US. Here is their prediction of housing prices for the next 12 months.
View attachment 20630
I will say it again, real estate is local. If you live in an area where the population is declining and demand is weakening, real estate will suffer. If you are in an area of demand, it will have excellent gains as we enter a sustained inflationary period with excellent economic growth on the horizon. On the whole, the US housing market has lots of legs. Anyone that was waiting on the sidelines last year and again this year, has probably missed out on a once in a lifetime capital appreciation opportunity. Now if you own a home and didn't sell or buy, you are not on the sidelines. But someone who chose not to buy because of lumber prices has probably hurt themselves in 9-10 markets. Now if you are talking about a DIY project like a shed where all the costs are tied directly to lumber and sheet goods, that's a different story.
Just so you know, I am putting my money where my mouth is on this one... I contracted a new construction last September that just finished framing and I am currently in a 38% positive equity situation on that home and it won't be complete for a few more months. (Picked a new development neighborhood in a booming city that is really benefiting from remote workers.) Just had a conversation with my agent today and the builder is planning on raising prices again before the end of the month in that development. Yesterday, I went under contract on another home in a resort town that I will live in for the next few months and then use it as a vacation rental. I figure vacation rentals will be in high demand for a few years too. I'll be glad to let you know what the appreciation looks like on both in 12-24-36 months. The market won't run as fast as it has, but there is plenty of juice left.
Comparing the housing market to the dot com bubble is silly. Comparing today's housing market to 2007 is just ignorant. These crazy price increases are a result of money printing, millennials coming of age and buying house, boomers living longer, and a lack of inventory caused chiefly by underbuilding for the previous decade. The housing bubble was caused by putting underqualified buyers into homes they couldn't afford and builders/developers thinking that trend was sustainable.
View attachment 20631
If your garage fridge costs more than a hundred bucks than you’re either super well off, dumb, or a showboat.
It has been a great selling market for Austin People getting 40 to 50 thousand over estimated price with dozens of offers.
Of course I missed it. At least we got this one before the big price jump.
I don't think so. A year ago yesterday a was posting about buying lumber stocks because they were going to blow the doors off. I have been pretty bullish on housing for a while. I was not so sure in March/April of last year when I thought we were all gonna die of Rona** But I don't think I put any negative vibes out there on housing. I was very nervous about the stock market with a second wave, election, and china stuff on the horizon this time last year, but I doubt crash was ever in my vocabulary.
Though I do get drunk from time to time and post some crazy shite... Ask PGB about the marmot incident.
View attachment 20636
Though I do get drunk from time to time and post some crazy shite... Ask PGB about the marmot incident.
View attachment 20636
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